Energy bills: why are prices rising so dramatically?

Gas supplies are low across Europe with pressure on food chain and power prices

Consumers’ energy bills and food supplies are being hit by a surge in the wholesale price of gas. Photograph: iStock

Consumers’ energy bills and food supplies are being hit by a surge in the wholesale price of gas. Photograph: iStock

 

What is happening with gas prices?

The wholesale price of natural gas has surged 250 per cent since the start of the year. Last month saw an increase of about 35 per cent. This is feeding through to price rises for business and domestic customers.

Why are prices rising?

The old saw: supply and demand. After a hard winter in 2020, European supplies are lower than they should be – about 16 per cent below the average over the past five years, according to the Financial Times. With winter looming again, concern in the market has pushed prices up.

Is this just a European problem?

No, stocks in the United States are also lower than usual – about 7 per cent below the five-year average – but Europe seems to be affected more than anyone else.

But why did they not simply build up supplies over the year?

There’s a whole range of reasons for that. A number of key gas fields and liquefied natural gas plants have been out of action for maintenance, affecting supply. That has seen supplies from Russia, on which Europe relies heavily, and the North Sea slow.

Demand has also surged as economies emerge from the Covid-19 pandemic. That has been a particular feature in Asia, where industry came back online earlier and which is in the process of transitioning from coal-fired to gas-fired power.

Shortages of other power sources have also seen countries, including Ireland, rely more heavily on gas for power generation. And drought in Brazil and Argentina has seen demand for gas there rise as their hydropower plants falter.

How does this affect Irish consumers?

In a whole series of ways. First up, gas accounts for more than half of the electricity generated in Ireland, a figure that has risen close to three-quarters at times this year as calm conditions hampered the contribution of wind power to the grid. Any change in the price of gas has a lopsided effect on the cost of electricity generation in Ireland.

It has also created a crisis in the UK electricity sector. Along with a breakdown on part of the connector Britain has with France that will further constrain supplies there, it likely means less excess supply from the UK market, which we tend to use as a backup through our interconnector with the UK when demand surges in Ireland.

So price rather than supply?

Yes. There are separate problems with supply, which have been exacerbated by two of Ireland’s gas-powered generation plants out of commission for maintenance but Minister for Environment Eamon Ryan is confident they will be back on stream in the next few weeks.

What will it mean for bills?

Energy providers have been ratcheting up prices all year. Some, such as Panda Power and Pinergy, have raised prices four times already this year, according to price comparison site, bonkers.ie. Only last week, Energia announced it was increasing prices for electricity and gas supplies by 15.7 and 18.5 per cent respectively. This is on top of two rounds of price increases earlier in the year.

Prices for customers are about 40 per cent higher than at the start of the year.

Can you do anything about that?

With prices changing so frequently, it is well worth checking one of the comparison sites – bonkers.ie, switcher.ie or powertoswitch.ie – to see if you can get a better deal with another supplier. If you have been with your current provider for longer than 12 months, you will almost certainly get a better deal.

Other than that, it’s just a question of being more aware of the electricity and gas you’re using and being more energy efficient around the home.

But with a whole raft of increases coming into play next month, and winter heating bills looming, the reality is going to be higher bills for everyone.

Is it affecting anything else?

Some major producers of CO2 say the elevated price of gas has forced them to suspend production. CO2 is critical for the food and drinks sector, where it is used in everything from dry ice for transporting fresh produce, extending the shelf life of meat and poultry, the production of beer and soft drinks, and even stunning animals prior to slaughter. Problems with CO2 supplies could impact stocks on shop shelves.

Is any solution in sight?

Possibly. A major new gas pipeline, Nord Stream 2, has been completed, opening the prospect of new supplies from Russia. However, it is not yet commissioned. The hope is that it will be before the end of this year. Other maintenance projects are also nearing completion, which might ease pressure on gas supplies. But, with the clock ticking, markets are nervous, hence the continuing wholesale price increases.

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